Russia prepares to ride out the credit crunch

For more than a year Russia has seemed immune to the liquidity crisis. But now it's starting to feel the squeeze, and Russia's Central Bank stepped in on Monday, offering banks around $8 Billion worth of Repo auction funds.

A fall in oil prices and the military conflict with Georgia have certainly scared the stock market. It fell last week to its lowest in almost two years, and the ruble saw its biggest one-month drop against the U.S dollar in more than 9 years.

Gennady Melikyan, First Deputy Chairman of the Central Bank of Russia says that's made it hard for Russian firms to raise the money they need to oil the wheels of trade:

“In the first half of last year Russian banks borrowed $38 Billion on the international markets. In the first half of this year we borrowed $10 Billion less. ”

But Pavel Teplukhin, President, Troika Dialog says the tightening of liquidity may have a silver lining if it helps tame inflation.

“Excessive liquidity would create inflationary pressure, so I would say that Russian authorities should be very disciplined in providing liquidity to the financial system.”

The Central Bank raised interest rates a quarter point last week – publicly, to combat inflation – though it would also have given the ruble some support. Presidential Advisor, Arkady Dvorkovich, insists Russia will ride out the credit crunch:

“The Central Bank prioritized inflation fighting in recent months, and one of the results of that was the increasing interest rates and declining banking lending, and some slowdown in investment growth. But this will recover in the next few months as inflation will come down and corporate uncertainties will disappear.”